Bill Brown

I was out scouting for gas at 3:15 a.m. and I lucked out! The second closest station (SuperPumper at Cave Creek and Rose Garden) had special and premium available and the line was perhaps five minutes long (10 cars). I spent $25.96 @ $2.19/gallon—I gave the Camry a special treat by filling it up with premium, which it’s never had before.

It’s amazing the price elasticity that comes with a shortage. I paid $2.19—a price that would have made me blanch a week ago—and I would have paid a lot more. If they had had a station that charged $4.00 per gallon but offered light lines, I would have pulled in smiling.

The Durango, sadly, could not get any fuel since it requires regular unleaded. What was once a nice feature has now become the obstacle limiting access to gas. So Sandi has to walk to work, which is thankfully a block away. Normally, that wouldn’t be a problem at all except that she’s 30-weeks pregnant today.

Predictably, the politicians are saying that something must be done.<blockquote>But the persistent price increases made some consumers suspicious.

“The companies say they have to raise prices, but there’s probably a little bit of capitalism in there, too,” said Bruce Johnson, an independent driver for AAA cabs.

Arizona Attorney General Terry Goddard said his office has been swamped with calls from angry consumers demanding that something be done about the high prices.

But although he said his office will be carefully monitoring retail prices, he noted, “It’s not illegal to raise prices.” Arizona does not have anti-gouging laws, and Goddard’s office is restricted to prosecuting price-fixing and collusion. —The Arizona Republic</blockquote>Terry Goddard, a Democrat, is always panties-in-a-bind when it comes to corporations so his attitude is unexpected. I also mentioned yesterday about the conspiracy theorists among my co-workers.

Goddard is also going to push for an anti-gouging law. In an irony that wasn’t noted, the article features a complaint from an A/C technician who thinks that there’s some gouging. Have these people (and the hundreds who called the Attorney General) never been exposed to basic economic law? Supply and demand theory?

People I’ve spoken with seem to think of the pipeline as they think of their water faucet: an always-on spigot that requires merely the lift of a hand to get as much liquid as needed. That is not the case. The pipeline ends in Tucson with a filling station for gas trucks. I doubt that these filling stations occupy areas in the square miles so there’s a finite number of tanker trucks that can wait for gas. I’m guessing that each truck takes awhile to fill up (three trucks per hour according to the article) and then even longer to make the trek to Phoenix and unload its gas to one station or maybe a couple—labor laws prevent a driver from working more than a 12-hour shift, complicating the increased delivery times even further. The Arizona Republic reports that there’s an eight- to ten-hour wait at the tanker supply stations. All of these new complications drive up the cost to the distributors, who pass the difference on to the consumer.

For every gas station charging $2.19 per gallon (and up), there’s three that have no gas whatsoever. If this were a scam or concerted operation by the myriad gas companies, all the stations would have some gas available in order to maximize the profit. That they’re not suggests that this is a shortage. One of the articles indicated that the wholesale price of gasoline is hovering at around $2 per gallon.

That the pipeline was poorly maintained and allowed to deteriorate without repair is certainly deplorable, but it didn’t occur in an regulatory vacuum. There’s a federal Office of Pipeline Safety and these pipelines have to fall under the jurisdiction of the EPA and the DEQ as well. The articles report that these pipelines haven’t been inspected since 1996. By centralizing responsibility for the pipeline in a government agency, the onus on the pipeline owner is shifted away. They lower their maintenance to compliance levels and rely on the government’s codified judgement about which future actions to undertake. Such regulation saps the company’s economic incentive to insure that the pipeline is in prime condition and actually encourages it to run the pipeline at the fullest capacity allowed by law.

The pipeline company, Kinder Morgan, has been patching any leaks for awhile and closed the pipeline voluntarily when the burst occurred for safety and liability reasons. I’m sure conspiracy theorists will seize on this voluntary closure as indicative of an artificial shortage, but they would have raised holy hell if the company had continued operating it and such operation resulted in an environmental disaster. To its credit, Kinder Morgan is planning an additional pipeline from Tucson to Phoenix, a pipeline from the Gulf Coast that ends at El Paso, and increasing shipments from California.

I don’t know much about the pipeline beyond the limited press coverage, but I do believe that there must be some dislocation that limits the economic incentive to maintain the pipeline properly. It very well could be corporate malfeasance, but it could also be a confluence of circumstances both governmental and corporate. The article mentions that Arizona has no refineries or oil wells, but doesn’t explore the reasons why there aren’t any refineries here. Could it be because of environmental pressures or NIMBY short-sightedness?

Another factor is that Arizona has a special requirement for its gasoline blend that no other state requires. This limits the supply because fewer refineries can (and do) produce the special blend. Conoco spokesman Julie Igo says that the special blend is “expensive and nobody wants to make it.” The special blend is required by the DEQ for smog reasons.

All these combine to make for a bad situation. Is it the much-reviled oil company’s fault? Nope, though they certainly don’t mind the situation. In a free market, things would be different. Note that free market in my context means laissez-faire, no regulation. There would be refineries in the state and the pipelines would be maintained because there’s too much of an incentive to let them degrade.